From Gareth Stokes, MoneyWeek editor, SA

You don’t become the world’s greatest investor without encountering a few obstacles along the way. Berkshire Hathaway founder Warren Buffett is no stranger to the inside of a courtroom. He’s had to face numerous legal challenges and assist US regulatory authorities with a range of investigations in his time. By his own admission the Federal Reserve in New York, the SEC, the US Treasury, the US Attorney for the Southern District of New York and the Justice antitrust division have all had his company in their sights. One of our favourite ‘struggle’ stories revolves around the Battle for Buffalo, a war for newspaper supremacy fought between Buffett (who purchased the Buffalo Evening News in 1977) and the Buffalo Courier-Express.

As the papers’ respective circulation figures see-sawed, the Buffalo Courier-Express decided to take Buffett to court, accusing him of trying to secure a monopoly in the Buffalo region by running them out of business. They convinced the judge to order an injunction against the Buffalo Evening News. Buffett stuck to his guns and had the ruling overturned some two years later. And, as justice would have it, the Buffalo Courier-Express went out of business in 1982. Why was Buffett so obsessed with the newspaper business? In those days he believed owning the only newspaper in a city was similar to operating a toll booth- super profit was up for grabs as the owner could control the link between businesses (advertisers) and the community they served. His theory proved true. After the Buffalo Courier-Express closed his paper soon started making monopoly profits!

Newspapers have since fallen from grace. Although Buffett does his best to bolster sales – he reads five papers every day – the industry is reeling. Addressing Berkshire Hathaway shareholders recently, Buffet said he wouldn’t buy newspapers in the US at any price. “They have the possibility of nearly unending losses, he said, adding that he saw nothing “on the horizon” to indicate a turnaround. Prospects are so poor that the New York Times Company is even contemplating closing the Boston Globe, which stands to lose $85m this year. What we’re witnessing is the death of an ‘old world’ money spinner. If we correctly identify the business that will ‘replace’ the newspaper we’ll be able to make serious money.

We think the ‘New Age’ media barons will be created in cyberspace. Their companies will make billions by disseminating information online. We’re not talking about the ‘all hype no revenue’ start-ups that littered markets during the Dotcom bubble of a decade ago; but solid companies with a track record in the world of publishing and broadcast. One such gem is local media giant Naspers Limited (JSE: NPN). In recent years the company has made significant cyberspace acquisitions and now dominates the online universe in a number of niches in Eastern Europe. Apart from the Allegro brand it owns 100% of Hungarian e-commerce company Vatera and 65% of online auction site Teszvesz. It also recently expanded on the solid platform offered by Gadu-Gadu in Poland by purchasing online auction business Tradus.

But the real money is going to be made in Russia and China. The group has a 35.5% share of China Tencent, which achieved a billion page views per day (and more than 45m concurrent users) during the Olympics. And we expect Naspers’ 36.2% share of Russia’s mail.ru will be similarly rewarding. That service already attracts more than 45m users. By persisting with its strategy of snapping up promising businesses during the recent economic crisis Naspers has built a useful foundation for a full-out assault on the online media industry. And the best news, for those who find online businesses too daunting, is that the company owns a stack of ‘blue chip’ operations in the traditional broadcast and media industries too.